Waiters Score Big Win Against Industry Effort To Pocket Their Tips

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Pam Walter took a job as a banquet server at the Hilton Garden Inn in Missoula, Montana, in 2006. At first, she was paid an hourly wage plus a share of customers’ tips. But Walter said those tips didn’t last long.

The gratuities earned by servers like herself at several Montana hotels were renamed “service” or “setup” fees, according to a class-action lawsuit Walter filed last year. The hotels continued to add these automatic charges to their customers’ bills, but instead of dispersing the cash among the servers, the house started pocketing it.

Now, that money is finally making its way back to Walter and her fellow servers. Earlier this month, they reached a $4 million settlement with the hotels’ owners and a common subcontractor, according to a settlement agreement approved by a Montana state judge. The lawsuit involves more than 500 workers.

Many of them will receive just a thousand bucks or so, but some will recoup as much as $80,000, depending on how long they worked for the hotels.

“We’re very happy,” said Jason Armstrong, one of the lawyers representing the servers. “The named plaintiffs were very brave in putting their names on the complaint. Any time you go up against your employer you’re putting yourself at risk. They held their [employers’] feet to the fire.”

The Huffington Post first reported on this dispute last year, when a hotel worker in Bozeman, Montana, filed an unrelated lawsuit against the Hilton Garden Inn there. Laurie Zabawa said the hotel switched to “service” fees in 2012, after it outsourced the banquet work to a subcontractor called Gateway Hospitality Group. The policy change meant the workers themselves no longer received the gratuities attached to banquet bills, she said. As banquet manager, Zabawa was tasked with enforcing the new policy.

“It was awful,” Zabawa told HuffPost at the time. “Just imagine working there with those people for years. They were my family. It was horrible to go through, and I had no options.”

What happened at Zabawa’s hotel is surprisingly common these days. Many businesses in the service industry have pocketed as “fees” the money that customers likely thought they paid as tips for frontline workers. In 2010, catering employees who worked the U.S. Open in New York accused the concessions company of swallowing a 21 percent fee that was tacked onto customers’ bills. The workers said the service fee looked to customers like a gratuity. They settled the lawsuit for $600,000.

As HuffPost reported in 2011, Yankee Stadium was accused of pulling a similar move. Beer and hot dog vendors said the stadium’s concessionaire, Legends Hospitality, was tacking a 20 percent service fee onto the drink and food orders in the stadium’s luxury boxes, while giving the vendors only 4 to 6 percent in commission. The difference, they said, went to Legends, which at the time was jointly owned by the New York Yankees, the Dallas Cowboys and Goldman Sachs.

Big pizza chains have gotten into the act, too. As HuffPost reported in 2014, Pizza Hut, Papa John’s and Domino’s now commonly add nominal “delivery fees” to the tabs for delivery orders. The fees, which range from $1.50 to $3 a pop, don’t go to the drivers ― even though many customers assume they do.

Adding such service fees allows companies to raise their real prices without raising their sticker prices. By implying the fees are tips for services rendered, they leave customers with the impression that the money goes to the workers. To critics like Armstrong, the practice cheats both workers and customers.

Montana is one of a handful of states that have tried to solve the problem by mandating that any such fees go to workers. The state law under which Walter sued her hotel defines a service fee as “an arbitrary fixed charge added to the customer’s bill by an employer in lieu of a tip.” Such a fee “must be distributed directly to the nonmanagement employee preparing or serving the food or beverage or to any other employee involved in related services.”

Hawaii, Massachusetts, Minnesota, New York and Washington state have their own laws addressing service fees. The Washington law allows businesses to charge a service fee but requires them to note on the receipt exactly how much the employee will receive.

In the Walter case, the hotels and the subcontractor agreed to cough up the employees’ shares of the original gratuities, plus a surcharge in penalties. Of the $4 million settlement, around $1 million goes toward the plaintiffs’ attorney fees.